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Ignore Gold's Shot-Term Momentum And Play The Long-Term Trend - State Street Global Advisors

Kitco News

(Kitco News) - The U.S. Dollar has pushed to its highest level since mid-January, which has driven gold prices to a one-month low, but one gold market analyst said that it is essential for investors to pay attention to the long-term trend.

George Milling-Stanley, head of gold investments at State Street Global Advisors, the marketing agent of the largest gold-backed exchange traded fund, SPDR Gold Shares (NYSE: GLD), said that the U.S. dollar has been in an 18-month downtrend and still has a long way to go to signal a significant momentum shift.

At the same time, gold prices have been in an uptrend since late 2015 and the rally has only accelerated. He noted that so far this year, the SPRD gold trust has seen its holdings grow by 33 tonnes this year. The net asset value of GLD has increased to $2.1 billion, with $1.4 in inflows since the start of the year.

A big chunk of GLD’s growth has come within this past month, with inflows in April totaling 25 tonnes, as of April 25.

Milling-Stanley’s comments come as the U.S. Dollar Index last traded at 91.47 points, up 0.33% on the day; meanwhile, June gold futures last traded at $1,318.30 an ounce, down 0.34% on the day.

“Gold investors are paying a lot more attention to long-term trends than this short-term momentum,” he said. “Investors are a lot more interested in diversifying into safe-liquid assets and gold is the first real liquid asset.”

Not only has gold benefited from a downtrend in the U.S. dollar, but Milling-Stanley said that falling equity and bond markets also make gold an attractive investment. Milling-Stanley’s comments come as the U.S. 10-year bond yields pushed above 3% for the first time since 2014. Bond yields run inversely to prices.

“Investors are asking themselves where do they go when both bond and equity markets are falling. Gold is the only asset left and that is what investors are starting to recognize” said Milling-Stanley. “Nobody is about how great equities are going to be this year. They are all asking themselves how bad it is going to get.”

While equities have seen a strong first-quarter earnings season with three-quarters of the companies in the S&P 500 Index reporting stronger-than-expected earnings, Milling-Stanley said that this is window dressing.

Most companies have used a windfall from the government’s historic tax cuts, which came into effect in January, to buy back shares, stock prices. Milling-Stanley added that this is not sustainable as the economy starts to struggle.

“The tax cuts are not being used to increase productive capacity and that is what is needed to drive sustainable long-term growth,” he said.

With the current market conditions, Milling-Stanley reiterated his call that gold prices will eventually push past $1,400 before the end of the year.

He added that he is not expecting to see a significant quiet period for gold this year. Geopolitical uncertainty and further weakness in equity markets should continue to support gold prices through the summer months.

“I think this year when people start to sell in May they are going to start taking more defensive positions and that will support gold prices,” he said.

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